Primark is to break free from its sister food company, which owns Twinings, Kingsmill and Patak’s, next year despite warning that the conflict in the Middle East is likely to hit consumer spending and drive up inflation.
The fashion chain’s owner, Associated British Foods (ABF), confirmed the plan to split off Primark from the rest of the food group, first mooted last year. The fashion group operates 486 stores across 19 countries.
The demerger is expected to create two new FTSE 100 companies, with Primark worth as much as £9bn and the food business £4bn, although the valuations would be dependent on an improved profits outlook, according to Charles Allen, an analyst at Bloomberg Intelligence.
City analysts have previously argued that Primark was undervalued as part of a conglomerate. The chain was founded by Arthur Ryan under its Irish brand name, Penneys, in Dublin in 1969 and opened its first shop in Britain, in Derby, in 1974.
The announcement came as the company reported that group sales fell 2% to £9.46bn in the six months to 28 February, with pre-tax profits down by 9% to £632m.
The company said its sugar business had performed “below our expectations” and was now expected to report an annual loss, while its grocery business had faced weak trading in the US.
Sales at established Primark stores across the world fell 2.7% in a “difficult clothing market”.
In the UK, underlying sales at Primark rose 1.3% as the cut-price chain gained market share, but this was offset by a 5.6% fall in mainland Europe, where it said consumer confidence was weak and measures to link stores to online services were not as advanced as in the UK.
“An encouraging start to spring/summer trading in March was followed by softer trading in April as we started to see the impact of the Middle East conflict on the consumer,” the company said.
The ABF chief executive, George Weston, said: “We are managing the impacts of the Middle East conflict. Given what we know today, we expect the cost consequences in 2026 to be manageable.
“However, there is a risk to Primark sales if the conflict persists and consumer spending deteriorates. Our strong balance sheet underpins the group’s resilience.”
Weston said ABF’s food business was largely protected from inflation at present as it had pre-bought energy and diesel, but he added that things could change if the conflict dragged on: “If nothing changes, we expect inflation to increase by the autumn in food.”
He said food suppliers would have to seek price rises from retail clients if costs increased but this would take time to have a real impact.
“Just as we saw in the aftermath of the Ukraine war, food price inflation peaked 12 months after the invasion began and there is the possibility that we will see the same shape to food price inflation starting in the summer but building,” he added.
Weston said it was too early to say if Primark would have to put up prices amid industry concerns over increased costs of human-made fibres, such as Polyester.
Weston, a member of the family that controls ABF and the long-term chief executive of the group, is to lead the food business after the demerger, which is expected to conclude by the end of 2027, while Eoin Tonge, the experienced former ABF, Marks & Spencer and Greencore finance director, will remain as chief executive of Primark.
The company said the demerger, under which shareholders are likely to swap one share in ABF for one share in each of the demerged firms, would cost £75m to arrange and the two companies would lose out on £45m in cost benefits of working together.
However, the ABF chair, Michael McLintock, said it had concluded that a demerger of its fashion retail arm was “the best way to maximise long-term returns for shareholders, reflecting Primark’s scale today and the need for a better understanding of the food business”.
He added: “The opportunities ahead for both Primark and FoodCo are considerable and the board firmly believes that each will thrive as an independent entity.”
The food business has agreed a deal to buy its rival Hovis but is awaiting clearance from the UK’s competition watchdog. ABF has offered to sell its Northern Irish bakery business to assuage concerns about competition in the country and said on Tuesday it is “focused on achieving regulatory clearance as efficiently as possible”.
Shares in ABF fell nearly 3% on Tuesday.